Show an ad over header. AMP

New woes for the jobless in 2021

People who collected unemployment this year will receive smaller — or nonexistent — tax refunds this coming year because of a tax law quirk that counts unemployment as taxable income.

Why it matters: Tens of millions of Americans who arguably need the refund the most will wind up financially short for yet another year.


  • Their household finances will remain precarious at a time of dismal job prospects — and they themselves may not be aware of the IRS' Grinchiness on this front.

Where it stands: Countless Americans filed for unemployment benefits for the first time this year, and many probably didn't ask the IRS and state tax authorities to withhold money from the payments the way an employer would — nor did they likely file quarterly tax estimates and payments.

  • Come 2021, they'll have to declare their benefits as income on their 2020 taxes, which could eviscerate any refund.
  • Unlike unemployment benefits, the one-time $1,200 stimulus checks that were sent out this spring under the CARES Act are not taxable income — they're considered tax credits.

The big picture: Even if tax authorities are lenient with their rules because of the pandemic, the fact remains that huge numbers of Americans of all income levels are going to miss out on the tax refunds they typically use to pay bills (including medical ones) or build their nest eggs.

  • "Tax season is usually the largest infusion of cash that low-income families will get in a year," says Leigh Phillips, president and CEO of SaverLife, a nonprofit that encourages low-income people to build up reserves.
  • Already, she said, half of America couldn't cover a routine financial emergency, like a flat tire.
  • And, since March, more than 2.1 million Americans have taken the desperate step of withdrawing funds from their 401(k) plans to cover basic expenses, per The New York Times.

"There are a lot of individuals who do perceive a tax refund as a sort of forced savings account, and that could be quite disappointing when that’s not the case." says Mike Savage, CEO of the tax preparation firm 1-800Accountant, whose clients are primarily very small businesses.

The details: The IRS will withhold 10% of an unemployment check if you ask them to — but that's not sufficient if you fall into a higher tax bracket (as most people do), and it doesn't cover what you owe in state taxes.

  • According to a fact sheet that the IRS put out in August, "withholding is voluntary" and "if a recipient doesn't choose withholding, or if withholding is not enough, they can make quarterly estimated tax payments instead."
  • Payments were due on July 15 and September 15; the next one is due on January 15.
  • But "estimated taxes are often neglected and are misunderstood," Savage tells Axios. "I think it's going to be a big problem."

The bottom line: People who lose their livelihood and have to forgo their tax refund are in for more than a one-two punch. They're likely falling into a financial hole that will be existentially difficult to climb out of.

  • Many people whose jobs were sidelined by the pandemic "have had no ability to earn income now for nine months," says Phillips, whose clients tend to be low-income single mothers.
  • "You don’t recover from that within a year, you don’t recover from that within a generation," she said. "We’re trading short-term pain for a much worse situation down the road."

Special report: How U.S. policy toward China transformed under Trump

President Trump began his term by launching the trade war with China he had promised on the campaign trail. By mid-2020, however, Trump was no longer the public face of China policy-making as he became increasingly consumed with domestic troubles, giving his top aides carte blanche to pursue a cascade of tough-on-China policies.

Why it matters: Trump alone did not reshape the China relationship. But his trade war shattered global norms, paving the way for administration officials to pursue policies that just a few years earlier would have been unthinkable.

Keep reading... Show less

GOP leaders skip Trump sendoff in favor of church with Biden

Congressional leaders, including House GOP leader Kevin McCarthy and Senate Majority Leader Mitch McConnell, will skip President Trump's departure ceremony in Maryland tomorrow morning in favor of attending mass with incoming President Joe Biden ahead of his inauguration, congressional sources familiar with their plans tell Axios.

Why it matters: Their decision is a clear sign of unity before Biden takes the oath of office.

Keep reading... Show less

U.S. declares China's actions against Uighurs "genocide"

With just one day left in President Trump's term, Secretary of State Mike Pompeo has officially determined that China's campaign of mass internment, forced labor and forced sterilization of over 1 million Muslim minorities in Xinjiang constitutes "genocide" and "crimes against humanity."

Why it matters: The U.S. has become the first country to adopt these terms to describe the Chinese Communist Party's gross human rights abuses in its far northwest.

Keep reading... Show less

Biden set to inherit Trump's TikTok conundrum

Donald Trump has one day left in the White House. TikTok has a lot longer left in the app stores, despite still being owned by China's ByteDance.

Why it matters: Trump's failure to force divestiture or eviction was more than just a blunder, or source of schadenfreude for the TikTok users who bedeviled his reelection campaign's event planners. It was part of a "talk loudly and carry a small stick" economic policy toward China that Joe Biden will inherit.

Keep reading... Show less

Trump leaves behind legacy of targeted vitriol towards the press

The Capitol attack on Jan. 6 resulted in at least nine physical assaults against journalists and at least five arrests, per the U.S. Press Freedom Tracker's top editor.

Why it matters: President Trump's harsh rhetoric towards the press has empowered leaders abroad and locally in the U.S. to continue to attack press that they don't like.

Keep reading... Show less

Despite burst of early policy moves, Biden's climate agenda will take years to fulfill

Joe Biden's inauguration and the days right after will bring a rat-tat-tat burst of climate policy moves, but keep this in mind amid the splashy pledges: pushing through most of his agenda will be a long, uncertain slog.

Why it matters: Biden's climate plan is far more expansive than anything contemplated under President Obama. But for all the immediate pledges, it will take years to see how far Biden gets.

Keep reading... Show less

Biden's inflation danger: Some economists sound alarm over stimulus plans

President-elect Joe Biden's $1.9 trillion stimulus proposal has economists and bullish market analysts revising their U.S. growth expectations higher, predicting a reflation of the economy in 2021 and possibly more booming returns for risk assets.

Yes, but: Others are warning that what's expected to be reflation could actually show up as inflation, a much less welcome phenomenon.

Keep reading... Show less

CES was largely irrelevant this year

Forced online by the pandemic and overshadowed by the attack on the Capitol, the 2021 edition of CES was mostly an afterthought as media's attention focused elsewhere.

Why it matters: The consumer electronics trade show is the cornerstone event for the Consumer Technology Association and Las Vegas has been the traditional early-January gathering place for the tech industry.

Keep reading... Show less

Insights

mail-copy

Get Goodhumans in your inbox

Most Read

More Stories